For my set of the research, I chose to review Complex trusts which are "trus
ts that are not required to distribute all their income currently." (Anderson, 2
023) Unlike simple trust which is a trust that must distribute all their income
but have no power to make charitable contributions, complex trusts have a di
stribution deduction, this deduction is the sum of all the income required to
be distributed or is distributed but cannot exceed the distribute-
able income. Another deduction that is available is the personal deduction whi
ch is dependent on how the trust is classified. If it required to be paying out
all its income, makes no charitable contributions, distributes principal it is cla
ssified as complex and has the exemption of $300. Another option for a co
mplex trust is required to pay out all its income, is authorized to make charit
able contributions, distribute no principal also has the exemption of $300. If t
here is authorization to make discretionary distributions of income, but not pr
incipal, and does not make any charitable contributions the personal exemptio
n would be $100. In the situation where there is authorization to make discr
etionary distributions of both income and principal, but make no charitable co
ntributions it is also classified as complex with the personal exemption of $10
0. One thing I found interesting in my research is "it's also possible to conver
t a simple trust to a complex trust and vice versa, if you find your needs cha
nge." (Sember, 2023) I am not sure why, but I thought had it be one and stic
k with it. In something like the revocable and irrevocable trusts, I have since
learned that that is not the case. Revocable, irrevocable trusts and grantor tru
sts are the three main types of trusts and they are classified as simple or co
mplex. "Being aware of the income tax aspects of these commonly used estat
e planning tools can help the attorney and client make choices that can mini
mize the federal and state income taxes payable at different stages of the tru
st’s existence." (Hughes, 2012)
References:
Anderson, K.E., Pope, T.R. & Rupert, T.J. (2023) Taxation 2023 Corporations, P
artnerships, Estates & Trusts Pearson. (Chapter 14 –
Income Taxation of Trust and Estates)
Sember, Brette J.D (2023) Simple trust vs. complex trust Retrieved on: https:/
/www.legalzoom.com/articles/simple-trust-vs-complex-trust
Hughes, Barbara (January 2012 -
Vol. 6, Issue 2)A Short Primer on Trusts and Trust Taxation Retrieved on: ht
tps://www.specialneedsalliance.org/the-voice/a-short-primer-on-trusts-and-trust-
taxation-2/
